Holiday properties possible through SMSF: Expert

Property investors can use their self-managed super fund (SMSF) to buy a holiday home and use it themselves, provided they structure the investment correctly, according to Andrew Bloore, CEO of software group SuperIQ.

Speaking at the recent Institute of Chartered Accountant’s National SMSF Conference, Bloore says he has seen examples of where someone has wanted to buy a chalet in the snow, but have said: “No, I can’t use it because I am leasing it to myself”.

Under limited recourse borrowing arrangements (LBRA), DIY super investors can hold residential or commercial property in their funds, but cannot lease the property to themselves or to a related party such as a family member or fellow fund member.

The exception is if it the property is classified as “business real property” – which is property used wholly and exclusively in the running of a business, such as a house that is used as a doctor’s office.

“So in the case of the ski chalet, what they have done is set up a business entity, which enters into a lease arrangement [with the fund], and it goes into the business of daily rentals of that property,” Bloore explains.

“It hires people and rents out the premises so it is now very clearly a business premises.

“The rental agreement is with the business entity, not with the super fund,” he says, “so it meets all the conditions of the business real property.”

Bloore says investors can use the SMSF rules to their advantage if they structure things correctly and think outside the square.

“Structuring will make all the difference as to how you buy and hold an asset in your super fund,” he says.

This is article is for illustrative purposes only and should not be construed as financial advice.